Driven by an insatiable apatite of China and India, the rise in global energy consumption has effectively put an end to the equilibrium between producing countries on the one hand and transit and consuming countries on the other hand, strongly favoring the former.
This is perhaps best illustrated by the way EU-Russia relations have evolved since the so called Gas Crisis in January 2006. Indeed, there has been a profound change in Russia’s attitude offering little comfort for European consumers.
We are witnessing the end of one era, whereby oil and gas from the Soviet Union and then Russia acted as an alternative as well as sort of a fallback option to the supplies of oil and gas from the Middle East. Having gone through difficult times of the Cold War rivalry, the demise of the Soviet Bloc, and the rebirth of Central and Eastern Europe, this mutually beneficial relationship is about to end.
In my opinion, there are three principle reasons behind this trend:
Firstly, it is the rapid and quite unforeseen geopolitical and economic rise of Russia and Moscow’s willingness to put energy to the forefront of its foreign policy. In a way, it can be argued that Russia’s energy policy is morphing into its foreign policy’s alter ego. Secondly, the slump in the output of oil and gas fields in the Volga basin and Eastern Siberia as well as the limited lifespan of transportation routes (meaning pipelines) contribute to this increasingly dire outlook for European consumers. The third and probably decisive factor, more or less connected to the previous two, is the opening of new and for Russia more attractive markets in Asia (i.e. China, Japan, and India).
Now I would like to elaborate a bit further on my assumptions:
Put it simply, Russian economic doctrine, according to which Russian companies ought to increase their stakes in each and every part of supply chain (i.e. production, transportation and distribution), is designed to drive down transit costs and make it possible for companies to acquire refining capacities and distribution grids so as to increase their profits. Imposing different prices for different countries has in the past proved to be an effective foreign policy tool at Russia’s disposal.
Nevertheless, Russia will probably move to rely more on pipelines directly in its control, or else it will attempt to put out of the equation those transit countries that are deemed either unforthcoming in so far as Russian interests are concerned (e.g. Poland) or potentially unreliable (e.g. Belarus, Ukraine). Rising domestic consumption of gas in Russia and shrinking oil and gas fields supplying EU countries coupled by the poor state of gas and oil pipelines will eventually lead to a reduction in the total volume of supplies. I presume that any reduction in energy supplies will follow the logic of Russia’s economic and political interests, thus it will impact only some importers.
This dovetails with what I have been saying about the little effort in maintaining energy infrastructure as well as the lack of geological exploration in Western Siberia. As new oil fields are located in Eastern Siberia, transport routes have been conceived accordingly, in that they will be bound eastward and southeastward, thereby granting Russian companies easier access to Asian markets, such as in China and Japan. And I am not mentioning that part of Western Siberian production might be redirected eastward. Arguably, from Russia’s point of view, the fact that there will be no intermediaries in its energy dealings with Asian customers counts as positive.
Since the Second Energy Forum is held here in Prague and I have been recently appointed to the post of Czech Ambassador to Ukraine, I would like to discuss my assumptions in the context of the Druzhba oil pipeline.
The Druzhba oil pipeline begins in northwestern Siberia and runs to Central Europe. There is an extension of the pipeline connecting Baltic countries (i.e. Latvia and Lithuania) and Russia. However, this leg of the Druzhba pipeline is no longer in use. At Mozyr, Belarus, the Druzhba pipeline splits with the north leg running via Poland to the eastern part of Germany. It is expected that this leg will be shut down as well. For the time being, the south leg will stay in operation supplying the Czech Republic via Hungery and Slovakia. To get a broader picture, however, we also have to factor in possible signs of stopping the Brody-Plock pipeline project.
Energy interests are indeed becoming a byword for Russian foreign policy and sometimes it is hard to tell these apart.
To conclude, I will suggest as how we should respond to possible future developments I have outlined. Perhaps the first and most important step to take is to accept the challenges at hands and potential risks pertaining to them. We have to realize that EU member states have common interests in so far as their energy needs converge and thus we have to make sure that the EU speaks the same voice as well as it is able to hammer out a common position. We have to continue to diversify our supplies of oil and gas while seeking a feasible alternative to fossil fuels - nuclear energy is no doubt a possible alternative here.
At the same time, we have to ponder possible ways how to cooperate with Russia in developing hydrocarbon deposits in the North Sea and the Arctic Ocean, where only sophisticated European extraction technologies could breed success. As things stand right now, we need to come up with realistic goals and adequate means to attain them. One has to bear in mind that stepping down in protest or making empty gestures works neither in business nor in politics.